EURJPY – Does Further Yen Weakness Lie Ahead?

We’ve seen a decent rally in the yen today on the back of reports that the Japanese fiscal spending package will be much smaller than previously thought – ¥6 trillion rather than ¥20 trillion – calling into question both the effectiveness of any monetary stimulus that could come and how large it will be.

EURJPY Daily

The rally in the yen has sent the euro back to 114.45 against the Japanese currency, where it has run into a confluence of support levels, including a prior area of resistance from when the pair came off its lows in June before making a higher low. It also falls around 50% retracement of the move from 6 July lows to 20 July highs.

Yen Rise Supported By Guesstimates

Finally, the pair could also be finding support from bottom of the Ichimoku cloud on the 4-hour chart, after breaking above it two weeks ago. Should this hold, it could be seen as confirmation of that initial break and signal a bullish continuation in the pair following a brief correction.

EURJPY 4hr

From here, we could see a move back towards this month’s highs, or higher, with initial resistance potentially being found around 115.50, while 116-116.50 has also recently been a key level of support and resistance.

A break through here on the other hand would obviously suggest otherwise and while the pair could find further support around 113.75, we could see further declines in the coming days and weeks. Confirmation of this would come from a break of the lagging line through the bottom of the cloud.

OANDA MP – Yen Rises on Stimulus Doubts (Video)

At this point, we could see a move back towards the lows of June and July, with the pair having previously found support and resistance between 113 and 113.30.

The OANDA Historical Positions tool shows that the net client position in this pair has followed price quite well throughout July and now we’re seeing the net short position being reduced at this key support level. This could be seen as a bullish signal although of course, the position still remains net short and there’s no guarantee that it will continue to track price so well.

Historical Position Ratios

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.